| Tue 3 Oct 2006, 8:56 | | Mittal rattles market with 7,5% price hike |
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Mittal rattles market with 7,5% price hike
Siseko Njobeni
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Trade and Industry Correspondent
SOUTH African steel consumers face yet another price hike after steel maker Mittal Steel SA said yesterday it would increase prices by up to 7,5% on some flat and long steel products. Economists warned that the increases would feed into producer prices and would almost certainly fuel inflation.
The price increases, effective at the beginning of next month, follow back-to-back increases in July and August, and come amid steel shortages caused by increased demand.
Mittal, which provides 80% of SAÆs steel, increased prices on flat steel products 8%, and 6% on long steel products in July. It increased prices an average of 5% in August.
Absa treasury economist Chris Hart said yesterday that the price increases would keep producer inflation higher for longer.
He said the weaker rand would worsen the negative effects of the price increases.
ôThe weaker rand is wreaking its own havoc. To curb producer inflation, one would have to see a stronger rand. In a weak-rand environment, prices ù not just of steel ù become unstable.ö
Harmony Gold CEO Bernard Swanepoel said yesterday that the company was disappointed with MittalÆs decision.
ôAs long as they are the only supplier they will be able to do as they want. MittalÆs increases have no bearing on input and labour costs,ö Swanepoel said.
Harmony and another steel user, DRDGOLD, have been vociferous in their opposition to what they have said is MittalÆs excessive pricing and abuse of its market dominance.
The two mining houses have taken Mittal to the Competition Tribunal. Hearings at the tribunal are expected to resume next month.
Mittal said yesterday that its prices were benchmarked against domestic prices in other steel-producing countries such as Brazil, Russia, China and the US.
This model has replaced the controversial import parity pricing system, the subject of the tribunal hearings. The company is in talks with government over a new pricing mechanism. A Cape Town-based steel analyst said steel users might have to absorb the costs of the price increases ôas it will be difficult to pass them on to the consumerö.
ôIt is a global trend that consumer inflation is lower than the producer price index. So steel users may take a knock on their profit margins,ö the analyst said.
However, he said the price increases came as no surprise and were long overdue. ôThey follow international trends.ö
Mittal SteelÆs recently appointed CEO, Rick Reato, said yesterday: ôWe have since August attempted to keep the lid on any price increases but international price trends (have) required us to increase the price on selected products.ö
The company said prices of flat steel products such as plate, hot-rolled coil and cold-rolled coil would increase 5%. It said there would be no increases on galvanised, colour, automotive, appliance and tin steel products.
It said certain wire rod products would increase 7,5%. There would be no price increases on other long steel products such as billets, rebar, rails and normal wire rod, the company said.
Hot-rolled coil prices would go up 9%, plate 12% and the average price increase of flat steel products was about 8%, with effect from August 1. That followed an average 5,4% average increase on flat steel in July.
Mittal indicated last month that it was considering importing steel in order to supplement local demand. The group has embarked on a R9bn expansion programme.
Another steel analyst said the increases came at a time when there was a surge in domestic demand for steel because of multibillion-rand investments in infrastructure.
